New middle class is big and bankable
EUROMONITOR’S international wealth and income distribution model looks at 50 markets through a measure of income and accumulated wealth. Our model forecast the growth of these factors to 2030 and has valuable insight as to where consumers will exit poverty and enter the middle class over the forecast period.
For consumer finance, these consumers that are recent additions to the middle class will represent a sizeable and bankable population. Companies that invest early and establish brand loyalty with these consumers will very likely benefit over the forecast period.
Significant gains for Asia Pacific, China, India and Indonesia are all expected to experience a sizeable reduction among consumers that earn less than $15 000 (R202 585) and have total wealth of $30 000 (this is defined as the bottom segment of both income and wealth in this scenario). The reduction from 2015 to 2030 is expected to be the most significant in China with 470 million consumers exiting the income-wealth classification, followed by India and Indonesia with 170 million and 40 million consumers, respectively.
A range of policy and economic factors contribute to the forecast, but ultimately mean the resulting expanded middle class consumers will significantly increase the demand for financial products and services. Many of the consumers that are currently in the lowest income-wealth classification would not utilise or have access to financial products or services.
Appoximately 347 million and 86 million consumers in China and Indonesia, respectively, over the age of 15 were considered unbanked in 2016. This translates to 31 percent of consumers over the age of 15 in China, and 45 percent of those in Indonesia who do not utilise a singe financial product or service.
Although the current banked population rate reflects consistent increases of the banked population over the last decade, the pace of adoption going forward will likely be greater as income and total wealth gains are realised in both markets. From 2016 to 2021 China, India and Indonesia are expected to have card payment value compound annual growth rates of 6.4 percent, 13 percent and 5 percent respectively.
The growth of financial services will likely benefit the largest local financial institutions or international financial institutions that are able to secure the consumers before their income increases.
In China, the China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of China accounted for a combined 52.9 percent of card payment value in China in 2015.
In India and Indonesia international banks have a greater share of card payment value and are in a better position to benefit from the projected rise in demand that such an increase among consumers would generate. Citigroup cards accounted for 9.3 percent of card payment value in India in 2015 and 6.8 percent in Indonesia.
The coming rise in income of consumers across Asia Pacific presents a significant opportunity for financial institutions, and indeed companies of all verticals. The companies that are able to develop brand recognition and loyalty early on with consumers that have income below $10 000 may be in a better position to benefit from the transition than those who wait. Kendrick Sands is Euromonitor’s senior analyst for consumer finance.